<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
[X] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
ANNALY MORTGAGE MANAGEMENT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ANNALY MORTGAGE MANAGEMENT, INC.
12 EAST 41ST STREET, SUITE 700
NEW YORK, NEW YORK 10017
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 1998
----------------
To the Stockholders of
ANNALY MORTGAGE MANAGEMENT, INC.:
The 1998 Annual Meeting of Stockholders of Annaly Mortgage Management, Inc.
will be held at the Grand Hyatt New York, Park Avenue at Grand Central, New
York, New York 10017, in the Alvin Room, on Monday, May 18, 1998 at 9:00 a.m.,
New York time, for the following purposes:
(1) To elect nine directors. If the proposed amendment to the Company's by-
laws providing for a classified Board are adopted, the nine directors
will be elected to a classified Board, with the Class I directors being
elected initially for a one-year term, the Class II directors being
elected initially for a two-year term and the Class III directors being
elected initially for a three-year term.
(2) To approve an amendment to the Company's by-laws providing for the
classification of the Board of Directors into three classes, with
members of each class serving staggered three-year terms.
(3) To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the current fiscal year.
(4) To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Provision is made on the enclosed proxy card for your direction as to the
matters set forth as Items (1), (2) and (3) above. Further information
concerning these matters is set forth in the accompanying Proxy Statement.
Holders of record of the Company's Common Stock at the close of business on
March 16, 1998 are entitled to receive notice of and to vote at the 1998
Annual Meeting of Stockholders and at any postponement or adjournment thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO PLEASE SIGN AND DATE THE
ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL
ENSURE THAT YOUR SHARES ARE VOTED IN ACCORDANCE WITH YOUR WISHES AND THAT A
QUORUM WILL BE PRESENT AT THE ANNUAL MEETING.
By order of the Board of Directors
MICHAEL A. J. FARRELL
Chairman of the Board and
Chief Executive Officer
New York, New York
March 31, 1998
<PAGE>
ANNALY MORTGAGE MANAGEMENT, INC.
12 EAST 41ST STREET, SUITE 700
NEW YORK, NEW YORK 10017
----------------
1998 ANNUAL MEETING OF STOCKHOLDERS
----------------
PROXY STATEMENT
SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Annaly Mortgage Management, Inc. (the
"Company"), to be voted at the 1998 Annual Meeting of Stockholders to be held
at the Grand Hyatt New York, Park Avenue at Grand Central, New York, New York
10017, in the Alvin Room, on Monday May 18, 1998, at 9:00 a.m., New York time,
and any postponements or adjournments thereof (the "Annual Meeting"). This
Proxy Statement and the enclosed proxy are being sent to stockholders
commencing on or about March 31, 1998. The principal executive offices of the
Company are located at 12 East 41st Street, Suite 700, New York, New York
10017.
Solicitation will be primarily by mail but may also be made by personal
interview, by telephone, by telegraph, by telex, or by telecopier, in each
case by officers and employees of the Company who will not be additionally
compensated therefor. The Company will request persons such as brokers,
nominees and fiduciaries, holding stock in their names for others, or holding
stock for others who have the right to give voting instructions, to forward
proxy material to their principals and request authority for the execution of
the proxy. The total cost of soliciting proxies will be borne by the Company.
VOTING
Only holders of record of common stock, par value $0.01 per share, of the
Company ("Common Stock") at the close of business of March 16, 1998, the
record date, will be entitled to vote at the meeting. On the record date,
there were 12,713,900 shares of Common Stock outstanding, and each holder of
shares of Common Stock will be entitled to one vote at the meeting for each
share registered in such stockholder's name. Holders of Common Stock are not
entitled to cumulate their votes on any matter to be considered at the
meeting. The presence at the meeting, in person or by proxy, of the holders of
a majority of the total number of shares of Common Stock outstanding on the
record date constitutes a quorum for the transaction of business at the
meeting.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of directors to serve until the 1999,
2000 or 2001 annual meeting of stockholders, in voting by proxy, stockholders
may vote in favor of all nominees or withhold their votes as to all nominees
or withhold their votes as to specific nominees. With respect to the other
proposals to be voted upon, stockholders may vote in favor of the proposals,
against the proposals or may abstain from voting. Stockholders should specify
their choices on the enclosed form of proxy. If no specific instructions are
given with respect to the matters to be acted upon, the shares represented by
a signed proxy will be voted FOR the election of all nominees, FOR the
proposed amendment to the Company's by-laws to adopt a classified Board of
Directors and FOR the proposal to ratify the selection of Deloitte & Touche
LLP as independent auditors for the Company for the current fiscal year.
Directors will be elected by a plurality of the votes cast by the holders of
the shares of Common Stock voting in person or by proxy at the Annual Meeting.
Approval of the proposed amendment to the Company's by-laws and the
ratification of the selection of the Company's independent auditors will
require the affirmative vote of the holders of a majority of the shares of
Common Stock present or represented at the Annual Meeting and entitled to
vote. Thus, in the case of approval of the these two proposals, abstentions
will have the same effect as a negative vote, but abstentions will have no
effect on the vote for election of directors. Broker non-votes will not be
included in vote totals and will have no effect on the outcome of the vote.
<PAGE>
A stockholder who submits a proxy may revoke it at any time prior to the
voting of the proxy by written notice to the Secretary of the Company or by
attending the meeting and voting the stockholder's shares in person.
After the initial mailing of this Proxy Statement, proxies may be solicited
by telephone, telegram or personally by directors, officers and other
employees of the Company (who will not receive any additional compensation
therefor). All expenses with respect to this solicitation of proxies,
including printing and postage costs, will be paid by the Company.
Arrangements will be made with brokers and other custodians, nominees and
fiduciaries to send proxies and the proxy material to their principals, and
the Company will, upon request, reimburse them for their reasonable expenses
in doing so. The Company may engage an outside proxy soliciting firm to assist
in the solicitation of proxies. The Company will pay reasonable fees and out-
of-pocket costs and expenses if it elects to engage such a firm.
PROPOSAL I
ELECTION OF DIRECTORS
At this Annual Meeting, the stockholders will vote to elect three Class I
directors, whose terms will expire at the 1999 Annual Meeting, three Class II
directors, whose terms will expire at the 2000 Annual Meeting, and three Class
III directors, whose terms will expire at the 2001 Annual Meeting (in all
cases subject to the election and qualification of their successors or to
their earlier death, resignation or removal).
The persons named in the enclosed proxy will vote to elect Spencer I.
Browne, John S. Grace and Wellington J. St. Claire as Class I directors, Kevin
P. Brady, Timothy J. Guba and Donnell A. Segalas as Class II directors, and
Michael A.J. Farrell, Jonathan D. Green and John A. Lambiase as Class III
directors, unless authority to vote for the election of any or all of the
nominees is withheld by marking the proxy to that effect. All of these
individuals currently are directors of the Company.
If Proposal II, the proposed amendment to the Company's by-laws to provide
for the classification of the Board of Directors, is not adopted, all nine
directors will be elected for a one-year term expiring at the 1999 Annual
Meeting of stockholders (subject to the election and qualification of their
successors or to their earlier death, resignation or removal).
RECOMMENDATION OF THE BOARD OF DIRECTORS CONCERNING THE ELECTION OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR Spencer I.
Browne, John S. Grace and Wellington J. St. Claire as directors to hold office
until the 1999 Annual Meeting of stockholders and until their respective
successors are duly elected and qualified, FOR Kevin P. Brady, Timothy J. Guba
and Donnell A. Segalas as directors to hold office until the 2000 Annual
Meeting of stockholders and until their respective successors are duly elected
and qualified, and FOR Michael A. J. Farrell, Jonathan D. Green and John A.
Lambiase as directors to hold office until the 2001 Annual Meeting of
stockholders and until their respective their respective successors are duly
elected and qualified. Proxies received by the Board of Directors will be so
voted unless stockholders specify in their proxy a contrary choice.
NOMINEES FOR DIRECTOR OF THE COMPANY
Set forth below are the names and certain information with respect to each
nominee for Director of the Company.
NOMINEES FOR CLASS I DIRECTORS (NOMINATED FOR INITIAL TERM EXPIRING AT THE
1999 ANNUAL MEETING)
Spencer I. Browne, age 48, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Browne has held various executive and management
positions with several publicly traded companies engaged in businesses related
to the residential and commercial mortgage loan industry. From August 1988
until September 1996, Mr. Browne served as President, Chief Executive Officer
and a director of Asset Investors Corporation ("AIC"), a New York Stock
Exchange traded company he co-founded in 1986. He also served as President,
Chief Executive Officer and a director of Commercial Assets, Inc., an American
Stock Exchange
2
<PAGE>
traded company affiliated with AIC, from its formation in October 1993 until
September 1996. In addition, from June 1990 until March 1996, Mr. Browne
served as President and a director of M.D.C. Holdings, Inc., a New York Stock
Exchange traded company and the parent company of a major homebuilder in
Colorado.
John S. Grace, age 40, was elected on June 26, 1997 to serve as a director
of the Company. For the past five years, Mr. Grace has been the Chairman of
Sterling Grace Corporation, Co-Chairman of Associated Asset Management, Inc.
and general partner of Anglo American Securities Fund, L.P. Mr. Grace is also
a director of the Cold Spring Harbor Laboratory Association, a genetic
research institute, and a director of Andersen Group, Inc. Mr. Grace has also
served as governor of the Foundation for Advanced Information and Research of
Tokyo, a research center whose membership includes senior executives from
Japanese companies, and as a trustee of the Ford Theater in Washington, D.C.
Wellington J. St. Claire, age 34, was elected on December 5, 1996 to serve
as Vice Chairman of the Board, and a director of the Company with
responsibility for managing the portfolio of the Company. She has been Senior
Vice President of FIDAC from March 1995 to the present and Treasurer since
July 1994. From July 1994 through March 1995 she was a Vice President of
FIDAC. Ms. St. Claire has been the portfolio manager for the Floating Rate
Fund since its inception in August 1994. Prior to joining FIDAC, from March
1992 to July 1994, Ms. St. Claire had been Vice President responsible for
asset selection and financing at Citadel Funding Corporation. Prior to joining
Citadel she had been a trader on the Mortgage-Backed Securities desk at
Schroder Wertheim and Co., Inc. She has attended the New York Institute of
Finance for intense Mortgage-Backed Securities studies.
NOMINEES FOR CLASS II DIRECTORS (NOMINATED FOR INITIAL TERM EXPIRING AT THE
2000 ANNUAL MEETING)
Kevin P. Brady, age 42, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Brady is the principal of KPB Associates Inc., an
accounting firm which specializes in corporate taxation. Mr. Brady founded KPB
Associates Inc. in December 1993. From July 1986 through November 1993, Mr.
Brady worked for Price Waterhouse LLP in New York City where he specialized in
international tax structures and financial reporting and held a number of
senior management positions. Prior to joining Price Waterhouse LLP, Mr. Brady
worked in the corporate tax department of Merck & Co. Mr. Brady is a Certified
Public Accountant.
Timothy J. Guba, age 40, was elected on December 5, 1996 to serve as
President, Chief Operating Officer and a director of the Company. Mr. Guba
joined Fixed Income Discount Advisory Company, a registered investment advisor
("FIDAC"), in March 1995 as a Senior Vice President, to assist FIDAC's
financial institutional clients with securities financing management. From
April 1991 to December 1994, Mr. Guba worked as a Vice President at Paine
Webber Inc. in its Taxable Fixed Income Department specializing in Mortgage-
Backed Securities. Mr. Guba was President of JPC Brokers Inc., a subsidiary of
Fundamental Brokers, from 1988 through 1991. He was responsible for a staff of
35 employees and a daily transactional volume of over $300 million in
Mortgage-Backed Securities. Mr. Guba was a Senior Vice President at L.F.
Rothschild Mortgage Capital from 1986 to 1988, specializing in trading of
mortgage pass-through certificates, where he established L.F. Rothschild as a
member in the FNMA and FHLMC selling groups. Mr. Guba began his career in 1980
at Morgan Guaranty Trust Company in the Treasurer's Department trading various
money market instruments. Mr. Guba has a BS in Finance and Business Management
from Cornell University.
Donnell A. Segalas, age 40, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Segalas is a Senior Partner of Beaconsfield
Capital, L.L.C., a cross border mergers and acquisitions and corporate
financial advisory firm which he co-founded in June 1997. Mr. Segalas is also
Managing Partner of Beaconsfield Partners, L.L.C., a wholly-owned subsidiary
of Beaconsfield Capital, which is engaged in private equity investing in the
United States and Mexico. Prior to his co-founding of Beaconsfield Capital and
Beaconsfield Partners, Mr. Segalas was a Managing Director at Rodman &
Renshaw, Inc. in the Mortgage- Backed Securities Department from 1994 to June
1997. In December 1995, Mr. Segalas was also given the additional
responsibility to manage Rodman & Renshaw's Structured Finance Group. From
1990 to 1994, Mr. Segalas served as Senior Vice President in the Mortgage-
Backed Securities Department at Tucker Anthony, Inc., where he co-managed the
3
<PAGE>
firm's Structured Finance Group. Prior to that time, Mr. Segalas had been a
Senior Vice President at Smith Barney, Inc. and Corporate Vice President at
Drexel Burnham Lambert.
NOMINEES FOR CLASS III DIRECTORS (NOMINATED FOR INITIAL TERM EXPIRING AT THE
2001 ANNUAL MEETING)
Michael A. J. Farrell, age 46, was elected on December 5, 1996 to serve as
Chairman of the Board and Chief Executive Officer of the Company. Since July
1994, he has been the President and CEO of FIDAC. He is a member of the board
of directors of the U.S. Dollar Floating Rate Fund. Prior to founding FIDAC,
from February 1992 to July 1994, Mr. Farrell served as President of Citadel
Funding Corporation. From April 1990 to January 1992, Mr. Farrell was a
Managing Director for Schroder Wertheim & Co. Inc. in the Fixed Income
Department. In addition to being the former Chairman of the Primary Dealers
Operations Committee of the Public Securities Association (from 1981 through
1985) and its Mortgage Backed Securities Division, he is a former member of
the Executive Committee of its Primary Dealers Division. Prior to his
employment with Schroder Wertheim, Mr. Farrell had been President of L.F.
Rothschild Mortgage Capital, Inc., Vice President of Trading at Morgan Stanley
and Co., Inc., and Senior Vice President of Merrill Lynch and Co., Inc. Mr.
Farrell began his career at E.F. Hutton and Company in 1971. Mr. Farrell has
25 years of experience in fixed income trading, management and operations.
Jonathan D. Green, age 51, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Green has been the President and Chief Executive
Officer of Rockefeller Center Management Corporation ("RCMC") and Rockefeller
Center Development Corporation ("RCDC"), subsidiaries of The Rockefeller Group
("RGI"), from July 1995 to the present. Mr. Green joined RGI in 1980 as
Assistant Vice President and Real Estate Counsel, was appointed Vice
President, Secretary and General Counsel in 1983, and was elected Chief
Corporate Officer in 1991. As President of RCMC, Mr. Green is responsible for
all aspects of RGI's real estate ownership and management interests in
Rockefeller Center in midtown Manhattan. As President of RCDC, Mr. Green
oversees RGI's real estate development projects including the International
Trade Center in Morris County, New Jersey and Rockefeller Plaza West in
midtown Manhattan. Before joining RGI, Mr. Green was affiliated with the New
York City law firm of Thacher, Proffitt & Wood.
John A. Lambiase, age 58, was elected on January 28, 1997 to serve as a
director of the Company. Mr. Lambiase was Managing Director in Global
Operations at Salomon Brothers from 1985 through his retirement in 1991. Mr.
Lambiase joined Salomon in 1979 as Director of Internal Audit. Mr. Lambiase
has served as Chairman of the Mortgage-Backed Securities Clearance
Corporation, a member of the board of directors of Prudential Home Mortgage
and a member of the Board of the National Securities Clearance Corporation,
and was a founding director and Chairman of the Participation Trust Company.
Mr. Lambiase also served on Salomon's Credit Committee. Prior to joining
Salomon, from 1972 through 1979, Mr. Lambiase was President of Loeb Rhodes
Wall Street Settlement Corporation with responsibility for securities
clearance of over 130 member firms. Prior to Loeb Rhodes, Mr. Lambiase had
been the Chief Financial Officer and a General Partner of W.E. Hutton. Mr.
Lambiase is a certified public accountant.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee of the Company consists of Messrs. Browne,
Lambiase and Segalas. The Compensation Committee is charged with administering
the Company's Long-Term Stock Incentive Plan and recommending to the Board of
Directors changes to that Plan. The Compensation Committee is also charged
with approving compensation for officers of the Company.
The Audit Committee of the Company consists of Messrs. Brady, Green and
Lambiase. The Audit Committee is charged with recommending to the Board of
Directors the engagement or discharge of independent public accountants,
reviewing the plan and results of the auditing engagement with the Chief
Financial Officer of the Company and the independent public accountants, and
reviewing with the Chief Financial Officer of the Company the scope and nature
of the Company's internal auditing system.
4
<PAGE>
The Nominating Committee of the Company consists of Messrs. Brady, Farrell
and Guba. The function of the Nominating Committee is to recommend to the
Board of Directors persons to be nominated as directors or to be elected to
fill vacancies on the Board. The Nominating Committee will consider nominees
recommended by stockholders of the Company. Such recommendations shall be
submitted in writing to the Secretary of the Company.
During the fiscal year ended December 31, 1997, the Board of Directors held
six meetings. Each Director attended at least 75% of the aggregate number of
meetings held by the Board which he or she was eligible to attend. During
1997, the Compensation, Audit and Nominating Committees of the Board did not
meet. Rather, all actions of the Board were adopted at meetings of the full
Board or by unanimous written consent of the entire Board of Directors.
COMPENSATION OF DIRECTORS
The Company pays an annual director's fee to each director who is not an
officer or employee of the Company (an "Independent Director") equal to
$10,000, a fee of $500 for each meeting of the Board of Directors of any
Committee attended by each Independent Director (or $250 for any meeting at
which the Director participates by conference telephone call) and
reimbursement of costs and expenses of all directors for attending such
meetings. Directors who are not officers or employees of the Company do not
receive an annual director's fee or a fee for attending Board or Committee
meetings.
The Company's Long-Term Stock Incentive Plan provides that each Independent
Director, upon appointment to the Board of Directors, receives a non-
discretionary automatic grant of non-qualified stock options for the purchase
of 5,000 shares of Common Stock, which options vest in four equal installments
over a period of four years form the date of grant. In addition, each
Independent Director is entitled to receive on June 26 of each year that he or
she serves as a director of the Company options to purchase an additional
1,250 shares of Common Stock, which options vest on the date of grant. The
exercise price for each option is the fair market value of the Company's
Common Stock as of the date on which the option is granted.
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY
---- -------------------------
<S> <C>
Michael A. J. Farrell... Chairman of the Board and Chief Executive Officer
Timothy J. Guba......... President and Chief Operating Officer
Wellington J. St.
Claire................. Vice Chairman of the Board
Kathryn F. Fagan........ Chief Financial Officer and Treasurer
</TABLE>
Biographical information regarding Mr. Farrell, Mr. Guba and Ms. St. Claire
is provided above. Certain biographical information for Ms. Fagan is set forth
below.
Kathryn F. Fagan, age 31, was employed by the Company on March 31, 1997 in
the positions of Chief Financial Officer and Treasurer. From June 1, 1992 to
February 28, 1997, Ms. Fagan was Chief Financial Officer and Controller of
First Federal Savings & Loan Association of Opelousas, Louisiana. First
Federal is a publicly-owned savings and loan which converted to the stock form
of ownership during her employment period. Ms. Fagan's responsibilities at
First Federal included all financial reporting, including reports for internal
use and reports required by the Commission and the Office of Thrift
Supervision. Her duties also included asset/liability management, internal
control compliance and the management of First Federal's investment portfolio.
During the period from September 1988 to May 1992, Ms. Fagan was employed as a
bank and savings and loan auditor by John S. Dowling & Company, a corporation
of Certified Public Accountants. Ms. Fagan is a Certified Public Accountant
and has a Masters Degree in Business Administration.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 9, 1998,
relating to the beneficial ownership of the Common Stock by (i) all persons
known by the Company to beneficially own more than 5% of the outstanding
shares of the Common Stock, (ii) each executive officer and director of the
Company and (iii) all officers and directors of the Company as a group. Except
as otherwise indicated, to the Company's knowledge, each such stockholder has
sole voting and investment power with respect to the shares beneficially owned
by such stockholder.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED
NAME AND ADDRESS OF ---------------------
BENEFICIAL OWNER NUMBER PERCENT
------------------- ------- -------
<S> <C> <C>
Michael A.J. Farrell
Annaly Mortgage
Management, Inc.
1500 Harbor Blvd.
Weehawken, NJ 07087.... 66,788(1) *
Timothy J. Guba
Annaly Mortgage
Management, Inc.
1500 Harbor Blvd.
Weehawken, NJ 07087.... 45,314(1) *
Wellington J. St. Claire
Annaly Mortgage
Management, Inc.
1500 Harbor Blvd.
Weehawken, NJ 07087.... 43,288(1) *
Kathryn F. Fagan
Annaly Mortgage
Management, Inc.
1500 Harbor Blvd.
Weehawken, NJ 07087.... 1,100 *
Kevin P. Brady
KPB Associates
12 Macatom Drive
Cranford, NJ 07016-
1632................... 4,000(2)(3) *
Spencer I. Browne
Strategic Asset
Management LLC
650 South Cherry Street
Denver, CO 80222....... 10,000(2) *
John S. Grace
55 Brookville Road
P.O. Box 163
Glen Head, NY 11545-
0163................... 126,250(4)(5) *
Jonathan D. Green
Rockefeller Group
1230 Avenue of the
Americas, 5th Floor
New York, NY 10017..... 5,000(2) *
John A. Lambiase
1489 Sweetbay Circle
Palm City, FL 34990.... 12,500(2) *
Donnell A. Segalas
Village Road
New Vernon, NJ 07976... 18,400(2) *
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED
--------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ --------- -------
<S> <C> <C>
Friedman, Billings, Ramsey Group, Inc.
1001 19th Street
North Arlington, VA 22209.................... 1,545,700(6) 12.2%
All Executive Officers and Directors as a
Group (10 persons)........................... 332,640(1)(2)(3)(4)(5) 2.6%
</TABLE>
- - --------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Includes 19,688 shares of Common Stock subject to vested options granted
under the Company's Incentive Plan to each of the following officers of
the Company: Michael A. J. Farrell, Timothy J. Guba and Wellington J. St.
Claire.
(2) Includes 2,500 shares of Common Stock subject to vested options granted
under the Company's Incentive Plan to each of the following non-employee
directors of the Company: Kevin P. Brady; Spencer I. Browne; Jonathan D.
Green; John A. Lambiase and Donnell A. Segalas.
(3) Includes 1,500 shares of Common Stock held by certain members of Mr.
Brady's immediate family.
(4) Includes 1,250 shares of Common Stock subject to vested options granted to
John S. Grace under the Company's Incentive Plan.
(5) Includes 35,000 shares held by Sterling Grace Capital Management, L.P., as
to which Mr. Grace may be deemed to have sole voting and dispositive
power, and 35,000 shares held by Anglo-American Securities Fund, L.P.,
20,000 shares held by Drake Associates, L.P. and 10,000 shares held by
Diversified Long Term Growth Fund, L.P., as to which Mr. Grace may be
deemed to have shared voting and dispositive power. Mr. Grace disclaims
beneficial ownership of all shares held by such limited partnerships in
excess of his pecuniary interest.
(6) Includes 650,000 shares held by Friedman, Billings, Ramsey & Co., Inc.
("FBR Co."), 708,700 shares held by FBR Ashton, Limited Partnership
("Ashton"), 177,000 shares held by FBR Opportunity Fund, Ltd. Class A (the
"Opportunity Fund") and 10,000 shares held by a principal of Friedman,
Billings, Ramsey Group, Inc. ("FBR Group"). FBR Co. is an indirect wholly-
owned subsidiary of FBR Group. Friedman Billings Ramsey Investment
Management, Inc. ("FBR Investment"), an indirect wholly-owned subsidiary
of FBR Group, is a general partner of Ashton and acts as a discretionary
investment manager to Ashton. FBR Offshore Management, Inc. ("FBR
Offshore"), also an indirect wholly-owned subsidiary of FBR Group, serves
the Opportunity Fund as a discretionary investment manager. FBR Group may
be deemed to own beneficially (as defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended) the shares of Common
Stock owned beneficially by FBR Co., Ashton and the Opportunity Fund. FBR
Group and its subsidiaries, including FBR Co., FBR Investment and FBR
Offshore, disclaim beneficial ownership of all shares of Common Stock in
excess of their respective pecuniary interests and for all other purposes.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The aggregate compensation paid or accrued by the Company during the
Company's fiscal year ended December 31, 1997 to the Chief Executive Officer
of the Company is set forth in the following table (the "Named Executive
Officer"). None of the other officers of the Company during fiscal year 1997
received compensation in salary and bonus which exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)(2)
------------------
AWARDS
------------------
SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR COMPENSATION OPTIONS/SARS(#)
- - --------------------------- ---- ------------ ------------------
<S> <C> <C> <C>
Michael A.J. Farrell,
Chairman of the Board and
Chief Executive Officer(1)............... 1997 $103,750 78,750
</TABLE>
- - --------
(1) At December 31, 1997, Mr. Farrell held 47,100 shares of restricted stock
with a value (based on the closing market price of the Company's Common
Stock on December 31, 1997, which was $11.00 per share) of $518,100.
Dividends are paid on restricted stock when and as paid on the Company's
Common Stock.
(2) The named executive officer did not receive perquisites or benefits which
totaled the lesser of $50,000 or 10% of salary plus bonus payments.
OPTIONS GRANTED
The following table sets forth, as to the named executive officer, with
respect to the fiscal year ended December 31, 1997, information relating to
the grants of stock options. All of such options were granted pursuant to the
Company's Long-Term Stock Incentive Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------- --------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- - ---- ------------ -------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Michael A.J. Farrell.... 66,750(1) 27.3% $ 4 1/02/2002 $ 43,098 $ 124,306
12,000(2) 4.9% $10 1/21/2002 0 0
</TABLE>
- - --------
(1) On January 2, 1997, the Company granted to Mr. Farrell incentive stock
options to purchase 66,750 shares of Common Stock at an exercise price of
$4.00 per share. These options vest in four equal installments on January
2, 1998, 1999, 2000 and 2001, subject to the approval of the Board in its
discretion each year. Any options which have not vested during the four-
year period commencing from the date of grant will vest automatically on
January 2, 2001. Such options were granted pursuant to the Company's Long-
Term Stock Incentive Plan.
(2) On January 21, 1997, the Company granted to Mr. Farrell incentive stock
options to purchase, at an exercise price of $10.00 per share, 12,000
shares of Common Stock. These options vest in four equal installments on
January 21, 1998, 1999, 2000 and 2001, subject to the approval of the
Board in its discretion each year. Any options which have not vested
during the four-year period commencing from the date of grant will vest
automatically on January 21, 2001. Such options were granted pursuant to
the Company's Long-Term Stock Incentive Plan.
8
<PAGE>
EXERCISES AND VALUES OF OPTIONS
No options were exercised in 1997 by the named executive officer. The
following table sets forth the value of options held at the end of 1997 by the
named executive officer:
FISCAL YEAR ENDED DECEMBER 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISE
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael A.J. Farrell........ 19,688 59,062 $119,816 $359,434
</TABLE>
- - --------
(1) Based on the closing sale price of the Company's Common Stock on the New
York Stock Exchange on December 31, 1997 ($11.00 per share).
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with Mr. Farrell, Mr.
Guba, Ms. St. Claire and Ms. Fagan. Each employment agreement provides for a
term through December 31, 1999 and will be automatically extended for an
additional year at the end of each year of the employment agreement, unless
either the Company or the officer provides a prescribed prior written notice
to the contrary. The Employment Agreements provide for annual salaries to Mr.
Farrell, Mr. Guba, Ms. St. Claire and Ms. Fagan based upon the book value of
the Company. Mr. Farrell's Employment Agreement provides for an annual salary
equal to 0.20% of the book value of the Company, subject to a maximum per
annum amount of $250,000; Mr. Guba's and Ms. St. Claire's Employment
Agreements provide for annual salaries equal to 0.17% of the book value of the
Company, subject to a maximum per annum amount of $200,000; and Ms. Fagan's
Employment Agreement provides for an annual salary equal to 0.10% of the book
value of the Company, subject to a maximum per annum amount of $125,000. The
Company's "book value" is defined in the Employment Agreements as the
aggregate amounts reported on the Company's balance sheet as "Stockholders'
Equity", excluding any adjustments for valuation reserves (i.e., changes in
the value of the Company's portfolio of investments as a result of mark-to-
market valuation changes).
Base salary is evaluated quarterly by the Board of Directors or the
Compensation Committee and upon the raising of additional equity. The maximum
salary caps may be raised at the discretion of the Board or the Compensation
Committee. Base salary can also be lowered at management's discretion based
upon the Company's cash flow needs. To date, the Board of Directors has not
revised the salary caps set forth in the employment agreements.
Pursuant to the employment agreements, the named executive officers are
entitled to participate in the Company's benefit plans, including the
Company's Long-Term Stock Incentive Plan. In addition, the Board of Directors
has established a bonus incentive compensation plan for executive officers of
the Company. This program permits the Board of Directors, in its discretion,
to award cash bonuses annually to executive officers of the Company.
Each employment agreement provides for the subject officer to receive his or
her base salary and bonus compensation to the date of the termination of
employment by reason of death, disability or resignation and to receive base
compensation to the date of the termination of employment by reason of a
termination of employment for cause as defined in the employment agreement.
Each employment agreement also provides for the subject officer to receive, in
the event that the Company terminates the subject officer's employment without
cause, or if the subject officer resigns for "good reason" (as defined in the
employment agreement, including the occurrence of a "Change of Control" of the
Company as defined in the employment agreement), an amount, 50% payable
immediately and 50% payable in monthly installments over the succeeding twelve
months, equal
9
<PAGE>
to three times the greater of such officer's combined maximum salary base and
actual bonus compensation for the preceding fiscal year or the average for the
three preceding years of such officer's combined actual base salary and bonus
compensation, subject in each case to a maximum amount of 1% of the Company's
book equity value (exclusive of valuation adjustments) and a minimum amount of
$250,000. Section 280G of the Code may limit the deductibility of such
payments by the Company for Federal income tax purposes. Each employment
agreement also contains a "non-compete" provision prohibiting the subject
officer from managing, controlling, participating in or operating a competing
REIT for a period of one year following termination of employment following
the Company's termination of the subject officer without cause or resignation
of the subject officer for "good reason" (including a "Change of Control").
Providing services to Fixed Income Discount Advisory Company (an affiliate of
the Company) and its customers is expressly excluded from operation of the
"non-compete" provision. In addition, all outstanding options and other awards
granted to the subject officer under the Company's Long-Term Stock Incentive
Plan shall immediately vest upon his or her termination without cause or
termination for "good reason" (including upon a "Change of Control"). "Change
of Control" for purposes of the agreements would include a merger or
consolidation of the Company, a sale of all or substantially all of the assets
of the Company, changes in the identity of a majority of the members of the
Board of Directors of the Company (other than due to the death, disability or
age of a director) or acquisitions of more than 9.8% of the combined voting
power of the Company's capital stock, subject to certain limitations. Each
agreement requires that the subject officer act in accordance with provisions
of Maryland law relating to corporate opportunities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised solely of the following outside
directors: Spencer I. Browne, John A. Lambiase and Donnell A. Segalas. None of
them has served as an officer or employee of the Company or any affiliate or
has any other business relationship or affiliation with the Company, except
his service as a director.
REPORT OF THE COMPENSATION COMMITTEE
The Company's compensation structure for its executive officers has been
developed with consideration for the following objectives:
1. Incentives for Management to Maximize Company Performance. The Company
has designed its compensation policy to provide the proper incentives to
management to maximize the Company's performance in order to serve the best
interests of the Company's stockholders. The Company has sought to achieve
this objective through the granting of options under the Company's Long-Term
Stock Incentive Plan. To date, executive officers of the Company have been
granted options to purchase, in the aggregate, 236,250 shares of Common Stock
of the Company with exercise prices ranging from $4.00 to $10.00. These
options vest in four equal installments over a period of four years from the
date of grant.
The Company's Board also has adopted a bonus incentive compensation program
for executive officers of the Company. This program permits the Board's
Compensation Committee, in its discretion, to award bonuses annually to each
of the executive officers of the Company based upon the officer's or the
Company's performance, or such other factors as the Compensation Committee
determines to be appropriate. As of the end of 1997, no bonuses had been
granted under this program. The Committee, with the assistance of Human
Resources Inc., an outside compensation consultant engaged by the Company, has
developed guidelines for awards for 1998. Such awards will be based primarily
upon increases in net equity of the Company because the Committee believes
that the Company's ability to raise additional equity will be related to the
Company's financial success and its ability to meet financial expectations.
The Committee, at present, has determined that awards should be based upon
increases in net equity, rather than net income, because of the Committee's
belief that short-term increases in net income which may result from excess
leverage would not promote the long-term success of the Company. Awards under
the bonus plan may be in cash, stock or options as determined appropriate by
the Compensation Committee.
10
<PAGE>
2. Long-Term Commitment of Company Management. The Committee believes that
the long-term commitment of its current management team will be a crucial
factor in the Company's future performance. This team includes Messrs. Farrell
and Guba, and Ms. St. Claire, who have worked together at FIDAC since March
1995 and at the Company since the Company's incorporation in November 1996 and
the Company's commencement of operations in February 1997. To ensure the long-
term commitment of its management team, the Company, with the approval of the
Board and the Committee, has entered into employment agreements with Messrs.
Farrell and Guba and Mss. St. Claire and Fagan. Each of these agreements
provides for a term through December 31, 1999 with automatic one-year
extensions unless either the Company or the officer provides written notice to
the contrary. The Committee also believes that the four-year vesting term for
the options granted to management will promote the long-term commitment of the
current management team.
3. Net Income to Stockholders. The Company's net income is a function of
various factors, including the difference between interest income on the
Company's assets and interest expense on the Company's borrowings ("net
interest income"). Net interest income, in turn, is a function of various
factors, including the Company's total and net assets and the prepayment rate
of the mortgages backing the Company's assets. The Company's net income is
also determined, in part, by the percentage which the Company's operating
expenses bear to the Company's net interest income.
With these considerations in mind, the Board established the executive
officers' base salaries as a percentage of the Company's net assets or "book
value." Mr. Farrell's base salary was established as 0.20% of the Company's
book value; Mr. Guba and Ms. St. Claire's salaries were established as 0.17%
of the Company's book value; and Ms. Fagan's base salary was established as
0.10% of book value. The Committee believes that this formula resulted in the
officers of the Company being compensated at substantially lower levels prior
to the consummation of the Company's initial public offering; however, the
Company believes that this was necessary to ensure that operating expenses of
the Company as a percentage of net interest income would not be excessive.
4. Comparability with Competitors' Compensation Structures. In assisting the
Company to develop guidelines for the Company's bonus incentive program, the
compensation consultant engaged by the Company looked to the compensation
structures of other publicly-held mortgage REITS and other publicly-held
companies in the financial services industry. The Company believes its
management compensation structure, generally, is consistent with the
management compensation structure of comparable companies. The Company will
continue to monitor that it compensation structure is consistent with the
compensation structure of its competitors.
The foregoing report has been furnished by the current members of the
Compensation Committee, being:
Spencer I. Browne John A. Lambiase Donnell A. Segalas
11
<PAGE>
PERFORMANCE ANALYSIS
The following graph provides a comparison of the cumulative total stockholder
return among the Company, the Standard & Poor's Composite-500 Stock Index ("S&P
500") and the BBG REIT Mortgage Index (the "BBG Index"), an industry index of
11 tax-qualified mortgage REITs. The comparison is for the period from October
8, 1998 (the date on which the Company's Common Stock commenced trading on the
New York Stock Exchange) to December 31, 1997 and assumes the reinvestment of
any dividends. The initial price of the Company's Common Stock shown in the
graph below is based upon the price to public of $12.00 in the Company's
initial public offering on October 8, 1997. The closing price of the Company's
Common Stock quoted on the New York Stock Exchange at the close of business on
October 8, 1997 was $12.63 per share. Upon written request, the Company will
provide stockholders with a list of the REITs included in the BBG Index. The
historical information set forth below is not necessarily indicative of future
performance.
[LOGO OF PERFORMANCE ANALYSIS]
<TABLE>
<CAPTION>
10/8/97 12/31/97
------- --------
<S> <C> <C>
Annaly................................................... 100 87
S&P 500 Index............................................ 100 98
BBG REIT Mortgage........................................ 100 78
</TABLE>
CERTAIN TRANSACTIONS
Messrs. Farrell and Guba, and Ms. St. Claire, are actively involved in the
management of Fixed Income Discount Advisory Company, a registered investment
adviser ("FIDAC"). Mr. Farrell is the sole stockholder of FIDAC. The Company
shares with FIDAC office space and certain office expenses, such as lease
payments and utilities charges, at cost on a pro rata basis based on the
relative use of such facilities and services by the Company and FIDAC. For
1997, $81,000 of the costs for lease payments and utilities charges were
allocated to the Company and $56,000 of such costs were allocated to FIDAC.
12
<PAGE>
Friedman, Billings, Ramsey & Co., Inc. ("FBR") and certain of its affiliates
may be deemed to own beneficially (as defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended) more than 5% of the Company's
Common Stock. FBR acted as initial purchaser in the Company's private offering
of 3,600,000 shares, at $10.00 per share, which was consummated on February
18, 1997. FBR received an initial purchaser's discount equal to .$70 per
share, or $2,520,000 in the aggregate, in the transaction. FBR also acted as
lead underwriter in the Company's initial public offering of 8,946,100 shares,
at $12.00 per share, which was consummated on October 14, 1997. FBR received
gross proceeds of $4,271,112 in connection with the Company's initial public
offering.
PROPOSAL II
AMENDMENT TO THE COMPANY'S BY-LAWS
TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS
The Company's Board of Directors has unanimously approved and recommended
that the stockholders of the Company approve an amendment and restatement of
Article IV, Section 1 of the Company's by-laws which would provide for the
classification of the Board of Directors into three classes of directors with
staggered terms of office (the "Classified Board Provision").
A copy of the Classified Board Provision is attached as Annex A to this
Proxy Statement, and stockholders are urged to review it carefully. The Board
of Directors reserves the right to make minor revisions to the text of the
Classified Board Provision, provided such revisions do not materially alter
the meaning or effect of the Classified Board Provision.
The Board of Directors has approved the amendment and restatement of Article
IV, Section 1 of the Company's by-laws to add the Classified Board Provision.
The Company's by-laws now provide that all directors are to be elected
annually for a term of one year. Maryland law permits provisions in a
certificate of incorporation or by-law approved by stockholders that provide
for a classified board of directors. The Classified Board Provision would
amend the Company's by-laws to provide that directors will be classified into
three classes, with each class to consist of three directors. One class would
hold office initially for a term expiring at the 1999 Annual Meeting of
Stockholders; another class would hold office initially for a term expiring at
the 2000 Annual Meeting; and another class would hold office initially for a
term expiring at the 2001 Annual Meeting. At each Annual Meeting following
this initial classification and election, the successors to the class of
directors whose terms expire at that meeting would be elected for a term of
office to expire at the third succeeding Annual Meeting after the election and
until their successors have been duly elected and qualified. See Proposal I,
"Election of Directors" as to the initial composition of each class of
directors if this proposal is adopted.
The proposed Classified Board Provision will significantly extend the time
required to effect a change in control of the Board of Directors and may
discourage hostile takeover bids for the Company. Currently, a change in
control of the Board of Directors can be made by stockholders holding a
plurality of the votes cast at a single Annual Meeting. If the Company
implements a classified board of directors, it will take at least two Annual
Meetings for even a majority of stockholders to make a change in control of
the Board of Directors, because only a minority of the directors will be
elected at each meeting.
ADVANTAGES. The Classified Board Provision is designed to assure continuity
and stability in the Board of Directors' leadership and policies. While
management has not experienced any problems with such continuity
13
<PAGE>
in the past, it wishes to ensure that this experience will continue. The Board
of Directors also believes that the Classified Board Provision will assist the
Board of Directors in protecting the interests of the Company's stockholders
in the event of an unsolicited offer for the Company.
DISADVANTAGES. Because of the additional time required to change control of
the Board of Directors, the Classified Board Provision will tend to perpetuate
present management. Because the Classified Board Provision will increase the
amount of time required for a takeover bidder to obtain control of the Company
without the cooperation of the Board of Directors, even if the takeover bidder
were to acquire a majority of the Company's outstanding stock, it will tend to
discourage certain tender offers, perhaps including some tender offers that
stockholders may feel would be in their best interests. The Classified Board
Provision also will make it more difficult for the stockholders to change the
composition of the Board of Directors even if the stockholders were to believe
that such a change would be desirable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE COMPANY'S BY-LAWS TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS.
PROPOSAL III
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The accounting firm of Deloitte & Touche LLP ("D&T") has served as the
Company's independent auditors since the Company's formation in November 1996.
During such time, it has performed services of an accounting and auditing
nature for the Company. Representatives of D&T are expected to be present at
the meeting, will have the opportunity to make a statement and are expected to
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR
THE YEAR 1998.
OTHER BUSINESS
As of the date of this Proxy Statement, management is not aware of any other
matters that will be presented by management for consideration at the Annual
Meeting. If any other matters properly come before the meeting, the persons
named as proxies in the enclosed form of proxy intend to vote in accordance
with their judgment on the matters presented.
PROPOSALS OF STOCKHOLDERS
Proposals, if any, of stockholders of the Company intended to be presented
at the 1999 Annual Meeting of Stockholders must be received by the Company for
inclusion in the appropriate proxy materials no later than October 31, 1998.
COMPLIANCE WITH REPORTING REQUIREMENTS
The Company believes that, during the fiscal year ended December 31, 1997,
all filing requirements under Section 16(a) of the Securities Exchange Act of
1934, as amended, applicable to its officers, directors and greater than ten
percent stockholders were complied with on a timely basis.
14
<PAGE>
OTHER MATTERS
On written request, the Company will provide without charge to each record
or beneficial holder of the Company's Common Stock as of March 16, 1998, a
copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1997, as filed with the Securities and Exchange Commission. Requests
should be addressed to Mr. Timothy J. Guba, President, Annaly Mortgage
Management, Inc., 12 East 41st Street, Suite 700, New York, New York 10017.
By Order of the Board of Directors,
Michael A. J. Farrell
Chairman of the Board and Chief
Executive Officer
March 31, 1998
15
<PAGE>
ANNEX A
ANNALY MORTGAGE MANAGEMENT, INC.
PROPOSED AMENDMENT TO BY-LAWS
The Company's by-laws would be amended by amending and restating Article IV,
Section 1 of the Company's by-laws to read as follows:
"SECTION 1. Number, Classification, Election and Term. The affairs of the
Corporation shall be under the direction and control of a Board of
Directors which shall be composed of nine (9) directors who shall hold
office until their respective successors are duly chosen and qualified. The
number of directors shall be increased or decreased from time to time by
vote of a majority of the entire Board of Directors; provided, however,
that the number of directors may not exceed fifteen (15) nor be less than
three (3) except as permitted by law.
The Board of Directors shall be divided into three classes, consisting of
three Class I Directors, three Class II Directors and three Class III
Directors. Each Class I Director shall serve through the Corporation's
annual meeting in 1999 and thereafter, if reelected by the stockholders of
the Corporation, for successive periods of three years, and until his or
her successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office. Each Class II Director shall serve through the Corporation's annual
meeting in 2000 and thereafter, if reelected by the stockholders of the
Corporation, for successive periods of three years, and until his or her
successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
Each Class III Director shall serve through the Corporation's annual
meeting in 2001 and thereafter, if reelected by the stockholders of the
Corporation, for successive periods of three years, and until his or her
successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
At all times a majority of the Board of Directors shall be Independent
Directors. "Independent Director" means a director of the Corporation who
is not an officer or employee of the Corporation, any affiliate of the
Corporation or Fixed Income Discount Advisory Company."
